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U.S. Dollar Index Maintains Bearish Pattern, Sterling Rally At Risk

U.S. Dollar Index Maintains Bearish Pattern, Sterling Rally At Risk

2011-08-12 17:04:00
David Song, Strategist
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DJ FXCM Dollar Index

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9555.88

9606.72

9533.81

-0.16

76.69%

U.S._Dollar_Index_Maintains_Bearish_Pattern_Sterling_Rally_At_Risk_body_ScreenShot006.png, U.S. Dollar Index Maintains Bearish Pattern, Sterling Rally At Risk

Chart From Bloomberg

The U.S. dollar struggled to hold its ground during the North American trade, with the Dow Jones-FXCM U.S. dollar index (Ticker: USDollar) slipping to a low of 9533.81, and the greenback may continue to give back the advance from earlier this week as market participants increase their appetite for risk. The USD is now 0.16% lower from the open after moving 77% of its average true range, and the lack of momentum to push back above the 20 SMA (9560.10) could push the index back towards 9500.00. However, may see the gauge trend sideways as the Bollinger Bands hold within the descending triangle, but a bearish breakout remains on the horizon as the price action approaches the apex.

U.S._Dollar_Index_Maintains_Bearish_Pattern_Sterling_Rally_At_Risk_body_ScreenShot005.png, U.S. Dollar Index Maintains Bearish Pattern, Sterling Rally At Risk

Chart From Bloomberg

As the economic docket for early next week remains fairly light, risk trends should continue to dictate price action in the days ahead, and the rebound in market sentiment could open the door for a test of the 20-Day SMA at 9500.62. With Fed policy makers scheduled to speak next week, we are likely to see dissenting views amongst the group, and market participants may show an increased reaction to the statements as the central bank pledges to retain its zero interest rate policy well into 2013. However, recent comments from Minneapolis Fed President Narayana Kocherlakota suggests that there will be a growing opposition against expanding monetary policy further, and we may hear central bank hawk Richard Fisher hold a similar tone next week as he dissents against the majority.

U.S._Dollar_Index_Maintains_Bearish_Pattern_Sterling_Rally_At_Risk_body_ScreenShot007.png, U.S. Dollar Index Maintains Bearish Pattern, Sterling Rally At Risk

Two of the four components advanced against the greenback, led by a 0.28% rally in the British Pound, but the advance could be short-lived as the Bank of England meetings minutes take center stage. As the government pledges to carry out its budget-cutting measures, the central bank may reproduce a weakened outlook for the economy, and we may see a growing shift within the MPC as the region faces a slowing recovery. As growth and inflation cool, the BOE may preserve its current policy throughout the remainder of the year, and the committee may show an increased willingness to expand the asset purchase program beyond the GBP 200B target in order to stimulate the ailing economy. Should we see an increased push to ease monetary policy further, the GBP/USD could fall back towards the 200-Day SMA at 1.6089, and the pair may threaten the rebound from 1.5781 as interest rate expectations falter.

Join us to discuss the outlook for the major currencies on the DailyFXForums

To discuss this report contact David Song, Currency Analyst: dsong@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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